InvestMacro Forex News

By MoneyMorning.com.au

In yesterday’s Money Morning, our old pal Murray Dawes wrote:

‘Look out for a sharp sell-off in the S+P 500 once it snaps beneath the 1390-1400 area, which is currently providing strong support. It will only take one nasty night to break through and then we will see a distinct shift in momentum.’

Last night, the US S&P 500 index fell 2.37% to 1,394.53.

In other words, the US market is sitting bang in the middle of Murray’s key technical level. Of course, it doesn’t mean the market will keep falling from here.

But it does mean you need to pay close attention to where the market is heading next…especially if you’ve ignored our advice to trim your stock portfolio.

We can only hope you didn’t follow the Reserve Bank of Australia’s (RBA) stock market advice…

While Murray warned you to look out for a post-US election sell-off, the front page of yesterday’s Australian Financial Review headlined, ‘Upgrade to shares, RBA tells savers’.

The AFR went on:

‘The Reserve Bank of Australia has signalled that interest rates are so low investors should shun low-earning term deposits in favour of riskier assets such as new housing and shares.’

That’s right, that’s just what risk-averse investors should do. Take money from a perceived low-risk investment (term deposits) and stick the cash in investments at the other end of the investment risk spectrum (shares and – oh brother – new housing).

The AFR quotes from Tuesday’s RBA statement. Here’s what the statement says:

‘Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns.’

The RBA should know all about lower interest rates. After all, it’s the RBA that has systematically cut the interest rates.

And now, after wreaking havoc on retirement savings, the RBA (who’s staff, like most government workers, benefit from defined benefit pensions rather than defined contribution pensions) is telling investors to suck it up and shop around for better returns.

In other words, these guys don’t have to worry about the value of their investments heading into retirement. They just have to make sure they can climb to the top of the greasy pole, to get on the highest pay band. Why? Because the way to calculate defined benefit pensions is on the number of years of employment and (here’s the key) the final year’s salary.

Naturally, if they can improve their retirement fund by sucking up to the boss rather than trying to make sound investment decisions, you can see why public servants do whatever they’re told and are always keen to impress their bosses.

That’s why the RBA doesn’t care about devaluing the dollar. Public employees don’t have to worry about inflation eating away at their savings because their final year salary determines their pension…which will always keep pace with inflation.

RBA Starts the Printing Press

Back in July, RBA governor Glenn Stevens told attendees at a luncheon:

‘We might find that, in an extreme case, the Reserve Bank – along with other central banks – would need to step in with domestic currency liquidity, in lieu of market funding. The vulnerability to this possibility is less than it was four years ago; our capacity to respond is undiminished and, if not actually unlimited, is not subject to any limit that seems likely to bind.’

In central banker gobbledygook that means the RBA is ready to print money if it needs to.

Well, based on a report in yesterday’s Age, it seems the need has arrived:

‘A surge in foreign deposits with the Reserve Bank has sparked claims it may be printing money, in an attempt to take the heat out of the Australian dollar…

‘[UBS strategist Gareth Berry] said these trends suggested the bank was effectively “printing” new Aussie dollars and supplying them to foreign central banks, which were then keeping the Aussie dollars on deposit at the RBA.

‘This would satisfy foreign central banks’ demand for Aussie dollars without forcing them to buy currency on the open foreign exchange market, where the dollar’s value is set.’

It’s easy for the RBA to tell investors to take more risks when they’re forcing down rates. It’s easy for the RBA to tell investors to take more risks when their own savings are unaffected by lower interest rates.

But for you as a regular investor…someone who doesn’t have psychotic dreams of reaching the top rungs of government and bureaucracy…you do have to think about your investments and your returns.

Money for Life

As we’ve told readers of our new free eletter, Pursuit of Happiness, you can take a few simple steps today to boost your retirement savings…and it won’t cost you a fortune…nor will it mean sacrificing your current living standards.

But we’re not the only one helping savers to fight against central bank and government market fiddling. Our old pal, Nick Hubble (you’ll have seen his name in this eletter from time to time) has his own take on saving for retirement.

He’s labelled it the Three Emerging ‘Money Trends’. In it he explains ‘how making a few small adjustments now can make a huge difference to your quality of life in retirement.’

In short, if you don’t have the luxury of a taxpayer-funded defined benefit pension plan you should look at Nick’s ‘Money Trends’ report today…before central bankers cause even more damage to your savings.

Cheers,
Kris

From the Port Phillip Publishing Library

Special Report: After the Bust

Daily Reckoning:
Using the Habit of Optimism to Find Great Investment Opportunities

Money Morning:
Forget the US Election, This Stock Market Event is the One to Watch For

Pursuit of Happiness:
How Are You Wasting Your Valuable Time?

Australian Small-Cap Investigator:
What Are Small-Cap Stocks?

Tell the RBA to Shove It…Invest Without Taking Big Risks

By MoneyMorning.com.au

With yesterday’s election results flooding the market it looks like nothing has changed, which is scary. That said, let’s take a refreshing break from the action and see what’s happening in the real, ‘money and energy’ world.

We’ll start with my two all-purpose investment barometers, gold and oil.

The price of each is among the first things I check every day (even today!) As far as I’m concerned, gold and oil are the embodiment of money and energy…

’Money makes the world go around,’ sang Liza Minnelli and Joel Grey in the movie and Broadway show Cabaret. Truer words have not been spoken. And I like the lyrics about energy later in that song:

‘When you haven’t any coal in the stove

And you freeze in the winter

And you curse to the wind at your fate…’

Yes indeed, the songwriters nailed the idea of money and energy.

We live in a world where it’s good to have money and it’s good to have energy. If you don’t believe it, just watch scenes of people scrambling and waiting in lines for gasoline in New York and New Jersey. Really, are you sure that you want to live that ‘low carbon’ footprint? Be careful about how you get there.

Prices for gold and oil have drifted down in the last two weeks. After yesterday’s ‘pre-election’ rally, gold is trading above US$1,700, while U.S. oil prices rallied around US$88 per barrel. Part of the short-term price decline involves a general strengthening in value of the [US] dollar, which pushes down the nominal price for yellow metal and black crude.

Another angle – more pertinent to the oil price slide – is ongoing weakness in foreign economies. Indeed, even with the hoopla around yesterday’s election, there’s a bigger, global picture with which to be concerned.

Oil demand is weak. It has certainly slacked off in Europe, Japan, China and many other developing nations. No, it’s not a world of “zombie” economies, let alone anything like The Walking Dead. But across the globe, the economic pulse in many nations remains weak.

 Unpayable Debt Levels

Why can’t economies across the globe get moving? There are many reasons – monetary, fiscal, and structural.

In my view, the biggest, most widespread issue is debt levels. Everywhere you look, national, regional and local governments are overly indebted. Businesses and households are also, in many cases, too deep in debt. There’s so much debt that the business cycle is having difficulty gaining traction.

So how do you get rid of debt? Well, you can pay it, if you have the money – which most debtors don’t. Or the debtor can go to the creditor and compromise obligations, by paying part and convincing the creditor to forgive the balance – which sometimes happens, but not often enough.

A debtor can discharge debt through legal process, such as bankruptcy – which, surprisingly, is NOT happening nearly as frequently as one might think. The worldwide trend toward long-term low interest rates has permitted borrowers to wallpaper over the problems of old debt. People roll up old debt into new debt and pretend that there’s a businesslike process of repayment at work.

Rolling over debt is usually just a shell game. How long can it last? And what happens when interest rates go up? Stand by for a tsunami of bankruptcy actions, eventually.

In some places, people still come right out and just repudiate debt. They simply say, ‘Too bad, but I’m not paying this.’ At some points in history, we’ve called those people Argentineans. But we may also hear something like that ‘I’m not paying’ line from Greece, Italy, Spain and Portugal, as well.

Whither the Euro?

This last point is another way of saying that the eurozone has profound problems. It’s still problematic whether or not the “One Big Europe” crowd in Brussels can keep everything together, despite the centripetal forces that are acting to tear the economic union apart.

Looking ahead, the euro could continue to weaken, as the southern countries simply cannot get their economies into gear. With a weaker euro, the dollar should strengthen. If the dollar strengthens, gold prices could come downsome more.

Of course, the Germans could also decide to bite the strategic monetary bullet and revert to a much more Germanic form of euro. I believe that the new product would resemble an ancient currency called the deutsche mark.

Note too that the Germans are making noises like they want their gold back from the Federal Reserve bank vault in New York – rehypothecation. When the formal request hits the wires, gold prices will rise. If the gold isn’t there, deep inside the Fed vault, gold prices will explode upward.

Long term, I foresee a very strong “Northern European” currency – deutsche mark redux – backed at least in part by a fortress full of gold. Come to think of it, that’s sort of how Germany looked 100 years ago, just before World War I.

Back then, the Germans had a fortress full of gold at Spandau, near Berlin. The gold was literally their “war chest”, accumulated over time to pay the costs of any conflict. The Germans quickly burned through the Spandau gold in the first months of World War I.

Much later, after World War II, Spandau became the Allied prison for German war criminals, including Karl Donitz, Albert Speer and Rudolf Hess.

 Remember the Fifth of November

Let’s visit some more history. This past Monday, Nov. 5, was Guy Fawkes Day, celebrated mostly in Great Britain (or not-so-great Britain, depending on your perspective). Guy Fawkes plotted to blow up the House of Lords in 1605, a mere 407 years ago.

Objecting to the established order, a group of conspirators planted barrels of gunpowder beneath the legislative chamber in London. Guy Fawkes was guarding the barrels when authorities arrested him. He was promptly tried and executed, because we can’t go around blowing up legislators, right?

Despite the treasonous angle of the underlying event, the British still commemorate Guy Fawkes and his ‘Gunpowder Plot’. The day holds different significance to different groups, of course, in our very confused modern era. That is, any number of organized groups work to hijack almost any event for their own purposes.

I don’t endorse blowing up Parliament. But in an abstract way, recalling Guy Fawkes serves to remind the political class that life isn’t all about them, their whims, desires and fads. Guy Fawkes Day signifies to political authorities that their power comes from the people.

Time will tell when the next revolution will strike. But in the meantime, keep your eyes on gold and oil….you should do just fine.

Byron King

Contributing Editor, Money Morning

From the Archives…

More Bad News for the Asian Century

2-11-2012 – Kris Sayce

Is the Asian Century Already Kaput?

1-11-2012 – Kris Sayce

Has the Australian Dollar’s Luck Just Run Out?

31-10-2012 – Murray Dawes

How the Aussie Dollar is Caught Up in Big Bankers’ Games

30-10-2012 – Callum Newman

Does Excessive Government Spending Make You the World’s Best Treasurer?

29-10-2012 – Kris Sayce

What’s Happening in the Real World of ‘Gold and Oil’

By MoneyMorning.com.au

Although it happened more than 40 years ago, many Americans still rue the day back in 1971 when U.S. President Richard M. Nixon effectively took this country off the so-called ‘gold standard’.

Under a true gold standard, paper notes are ‘convertible’ into pre-determined, fixed quantities of the ‘yellow metal’.

What actually happened back in 1971 was that President Nixon – facing huge budget and trade deficits, and a plunging dollar – enacted a series of economic moves, including the unilateral cancellation of the direct convertibility of the U.S. dollar into gold.

By slamming the ‘gold window’ shut, Nixon also brought down the curtain on the existing Bretton Woods system of global financial exchange.

The fallout was immediate, creating a situation that financial historians still refer to as the ‘Nixon Shock’.

Proponents of the gold standard say the real damage is still being wrought: That decision four decades ago led directly to the uncertainty, volatility and irresponsibility that we see in the US economy and global financial markets today.

Whether you agree or not is a topic for another time.

 Central Banks Buying Gold Again

But what I’m here to tell you today is that the world’s central banks have quietly – almost secretly – returned the world to a new version of the gold standard.

Back in 2010, the world’s central banks became net buyers of gold for the first time since 1988. Buying ramped last year and net purchases exceeded 455 metric tons (tonnes). That was the largest net purchase since 1964.

But the world’s central bankers will handily eclipse the 2011 totals here in 2012: They will purchase a projected 493 metric tons this year as they expand reserves to diversify away from the U.S. dollar and protect their countries’ economies against inflation, Thomson Reuters GFMS said.

And GFMS said you can expect central banks ‘to remain a significant gold buyer for some time to come.’

Real Asset Returns Editor Peter Krauth told me he completely agrees with that assessment.

As Peter explained: ‘You can see their thinking, Bill … you can see them saying: “We have enough of all these fiat currencies in our bank reserves – now we want something that’s going to counter those holdings, that’s a valuable asset and that has all the right fundamentals in place.” And that asset is gold.’

We’re seeing the results of this ‘new gold standard’ in the marketplace…

For instance, reports surfaced that central banks in Brazil and Turkey boosted their holdings.

Turkey purchased 6.8 tons in September, and Brazil added 1.7 tons – its first purchase in nearly four years.

The countries that are most-aggressively adding to their yellow-metal reserves include South Korea, The Philippines, Kazakhstan, Russia, Mexico, Turkey, Argentina and the Ukraine.

Gold has outperformed virtually all of the world’s top stock markets so far in 2012, according to a report by the World Gold Council.

And here’s a key point: Central bankers aren’t day-traders. So when they make a move like this, there’s generally a long-term time view.

‘All the fundamentals are in place for this to continue,’ Peter told me. ‘These guys tend to have a long time frame in mind. So when you see a shift like this, it’s a big deal. And the chances are that this could last for a very long time.’

William Patalon

Contributing Editor, Money Morning

Publisher’s Note: This is an edited version of an article that originally appeared in Money Morning (USA)

From the Archives…

More Bad News for the Asian Century

2-11-2012 – Kris Sayce

Is the Asian Century Already Kaput?

1-11-2012 – Kris Sayce

Has the Australian Dollar’s Luck Just Run Out?

31-10-2012 – Murray Dawes

How the Aussie Dollar is Caught Up in Big Bankers’ Games

30-10-2012 – Callum Newman

Does Excessive Government Spending Make You the World’s Best Treasurer?

29-10-2012 – Kris Sayce

The Secret Return to the Gold Standard

By Central Bank News
    The central bank of Poland, which earlier cut its reference rate by 25 basis points to 4.50 percent, said it would cut rates further if there are signs of a protracted economic slowdown and inflation remains under control.
    The National Bank of Poland (NBP) said recent data had confirmed that the Polish economy was slowing and this would restrain wage and inflationary pressures. According to the central bank’s new forecast, inflation should return to its target in coming quarters but might also drop below the bank’s 2.5 percent target in the medium term.
    Growth in Poland’s economy is forecast to remain below potential in coming years, the NBP said, cutting its forecast for 2012 growth to 2.0-2.6 percent, down from July’s forecast of 2.2-3.6 percent.
    In 2013 the forecast calls for Gross Domestic Product growth of 0.5-2.5 percent, down from its previous forecast of 1.0-3.2 percent, and 2014 growth of 1.1-3.5 percent. 
    “In the opinion of the Council, incoming data confirm a considerable economic slowdown in Poland, which contains wage and inflationary pressure,” the central bank said, adding:
     “Should the incoming information confirm a protracted economic slowdown, and should the risk of increase in inflationary pressure remain limited, the Council will further ease monetary policy.”
    Poland’s economy, which expanded by 4.3 percent in 2011, has been slowing sharply in recent months, mainly due to the euro zone’s debt crises and economic contraction. In the second quarter, Poland’s GDP rose by 2.5 percent, down from 3.5 percent in the first quarter and 4.2 percent in the fourth quarter of last year.
    “Economic activity data were worse than expected and reflected further economic slowdown in 2012 Q3,” the NBP said, noting that industrial output and retail sales in real terms declined in September while the fall in construction and assembly output deepened.
    A continued fall in employment, slower wage growth and a gradually rising unemployment rate “point to a lack of wage pressure and likely further weakening in private demand,” the bank added.
    Poland’s inflation rate remained steady at 3.8 percent in September, above the bank’s target, but the NBP said core inflation and producer price growth continued to fall, which confirms that demand pressure is weakening. Household and corporate inflation expectations also declined.
    Under the NBP’s latest forecast, which assumes unchanged interest rates, there is a 50 percent probability of inflation in the range of 3.7-3.9 percent in 2012, then easing to 1.8-3.1 percent in 2013 and 0.7-2.4 percent in 2014.  
    Poland’s inflation rate was 4.2 percent in 2011.

    www.CentralBankNews.info

By Chris Vermeulen, www.TheGoldAndOilGuy.com

By Central Bank News

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By Central Bank News
     The central bank of Poland cut is benchmark reference rate by 25 basis points to 4.50 percent, as expected, with the economy continuing to weaken.
    The National Bank of Poland (NBP), which had raised it rate in May to push back inflation, would explain its decision later today at a press conference.
    The central bank also cut its lombard rate by 25 basis points to 6.0 percent, the deposit rate to 3.0 percent and the rediscount rate to 4.75 percent.
    Poland’s economy has gradually been losing steam this year due to the euro area’s debt crises and recession. Poland’s Gross Domestic Product expanded by 2.5 percent in the second quarter, down from growth of 3.5 percent in the first quarter and 4.2 percent in the fourth quarter.
    The inflation rate remained steady at 3.8 percent in September and last month the NBP said it would cut rates if data confirmed that the economy continued to slow down and there were limited inflationary pressure even if it expects inflation to remain above its 2.5 percent target during the rest of this year.
    Since that meeting, several Polish central bankers, including the governor, have indicated they were favoring a rate cut.

    www.CentralBankNews.info

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 7 November 2012, 08:00 EST

SPOT PRICES for buying gold fell back to $1720 an ounce Wednesday morning in London, after hitting two-week highs following news of the re-election of Barack Obama as US president.

“Gold is making significant gains on the back of a weak US Dollar,” said this morning’s commodities note from Commerzbank.

Prices for buying silver fell back below $32 an ounce after they touched their highest level in a week.

“Obama’s re-election is likely to boost expectations of continued easing by the Fed,” says Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.

“We forecast gold will end the year at $1780 an ounce and peak late in 2013 at around $1890 an ounce,” adds a report from ANZ.

“We think there could be upside risks to these forecast highs, in the event of additional US policy easing or signs of inflation following the liquidity injections of the past four years.”

“Monetary policy will remain loose under Obama,” reckons Michiyoshi Kato, senior vice president of foreign-currency sales at Mizuho Corporate Bank in Tokyo.

“The Dollar will be sold…[but] Dollar selling may not last that long as the US faces the fiscal cliff.”

The so-called fiscal cliff refers to the combination of tax cut expiries and spending cuts currently due at the start of 2013 unless Congress passes legislation to cancel or postpone them.

European stock markets meantime ticked lower this morning, while on the currency markets the US Dollar recovered from earlier losses as the Euro dropped to a two-month low against the Dollar.

Commodities also fell, while US, UK and German government bond prices gained.

Greek politicians are due to vote tonight on a fresh round of austerity measures, in the hope that agreeing to further reforms will secure payment of the next tranche of bailout money. Wednesday saw the second day of a two-day strike called in protest at the proposals, which include wage cuts and tax hikes worth an estimated €13.5 billion.

“If lawmakers vote in favor of the measures,” says Nikos Kioutsoukis, secretary general of private sector union GSEE, “they will have committed the biggest ever political and social crime against the country and the people.”

Elsewhere in Europe, the financial management of the European Union “Is not yet up to standard”, according to Vitor Caldeira, president of the European Court of Auditors, which published its report on last year’s EU budget Tuesday.

British prime minister David Cameron meantime described as “ludicrous” this morning plans to increase the EU budget by 5%.

“They are proposing a completely ludicrous €100 billion increase in the European budget,” Cameron told reporters ahead of talks with German chancellor Angela Merkel.

“I’ll be arguing for a very tough outcome.”

Cameron’s government was defeated in a parliamentary vote last week, as 53 members of his party joined opposition Labour to pass an amendment calling for a real-terms EU budget cut.

Britain and Germany could “torpedo” the EU budget summit on November 22, German magazine Der Spiegel reports, in what it describes as an “unholy alliance”, with Germany also looking to see a reduction in the proposed EU budget increase.

China is set to overtake India as the world’s largest gold buying nation, according to Song Xin, vice president of the country’s largest gold producer China National Gold.

“China’s large increase in gold consumption will have a positive impact to the global gold market,” said Song.

“China’s production is expected to reach 380 tonnes this year, and we will continue to be the world number one gold producer.”

Reports from Asia this morning suggested gold buyers in India took advantage of last week’s wholesale market price drop, ahead of the Dhanteras and Diwali festivals, traditional occasions for buying gold, which will be celebrated on Sunday and Tuesday respectively.

“I think India has bought enough,” one Singapore dealer told newswire Reuters, “unless there’s a sudden last-minute rush.”

“If this Diwali we manage to sell even a small percent of what we sold last Diwali, we shall be very happy,” says Vimal Kumar Goyal, president of the Delhi Bullion and Jewellers Welfare Association.

“Sales have been abysmally low this year…there is an almost 50 percent dip in sales as compared to previous years and the sales never picked up after the strike was called off,” adds Goyal, referring to the three-week strike by Indian gold dealers that started in March after the government increased duty on gold imports and extended a sales tax to unbranded jewelry.

Indian gold demand could fall to 550 tonnes next year – compared to more than 900 tonnes over the whole of 2011 – new Bombay Bullion Association president Mohit Kamboj said Tuesday, adding that any import duty hikes could push demand down further.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.